Understanding your credit scores helps you learn more about your borrowing power and the level of risk you present to a lender when it comes to paying back a loan or bill.

Creditors may use different criteria to measure a borrower's credit risk when deciding to extend credit. Borrowers who they determine fall into the "subprime" range may have more limited access to credit.

The most recent data from Experian shows that 34.8% of consumers with a credit score fell into the subprime FICO® Score* range in the fourth quarter of 2018. The good news is this number is slightly down from 35.6% in the fourth quarter of 2017.

What Does Subprime Credit Mean?

Having a credit score between 580 and 669 is considered subprime, based on FICO® Score ranges. This means you have a fair credit score but present some risk to a lender. The higher your credit score, the thinking goes, the less likely you'll be to default on a loan or pay a bill late. Lower scores, as you can imagine, show there may be a greater degree of risk.

If you have a subprime credit score, you may find it difficult to qualify for certain credit cards and loans. If you do qualify, chances are you'll pay a higher annual percentage rate (APR) or perhaps even additional fees. Being aware of what is a good credit score can help you save money, so knowing the most important factors that go into your FICO® Score is important:

Most influential: Payment history on loans and credit cards

Highly influential: Total debt and amounts owed

Moderately influential: Length of credit history

Less influential: New credit and credit mix (the different types of credit accounts you have)

Let's take a look at the latest Experian data to learn more about subprime credit trends nationwide.

29 States Below National Subprime Average

Looking at the number of subprime consumers by state, Connecticut saw the biggest reduction: 7% since 2017. Hawaii was next with a 5% drop, while Colorado, Idaho, Michigan, Oregon and Utah all tied with a 4% year-over-year decrease in subprime users. In fact, all U.S. states saw the percentage of subprime consumers decline except Arkansas and Delaware, which stayed at the same percentage. Overall 29 states had a lower percentage of subprime consumers than the national average.

Minnesota Had Lowest Average of Subprime Users

Minnesota had the lowest average percentage of subprime users among all states at 22.8% during the fourth quarter of 2018. South Dakota had the second-lowest average at 24.4% followed by North Dakota and Vermont, tied with 24.8%. Trailing those states was Hawaii at 25.9%. These five states all reduced their percentage of subprime users by 3% year over year.

Mississippi Had Highest Average of Subprime Users

Mississippi had the highest average percentage of subprime users at 49.2% during the fourth quarter of 2018, which was down 1% compared with the fourth quarter of 2017. Louisiana had the next highest average with 45.6%, an improvement of 2%, followed by Texas at 44.1% an improvement of 1%. Alabama, Georgia and South Carolina all tied for the fourth-highest average of 43.8%. Overall, these six states decreased their percentage of subprime users by 2% year over year.

Millennials Account for Majority of Subprime Users

Data by generation shows the bulk of U.S. subprime users fall within the millennial and Generation X groups. Millennials represented 37% of subprime consumers in the fourth quarter of 2018. Millennials account for a large age range, 22 to 38, and many are making important credit decisions during those years.

Generation X made up the next largest group of subprime consumers at 33%, followed by baby boomers, who accounted for 21% of subprime users. Comprising the smallest number of subprime users were the two groups on opposite ends of the credit lifecycle. Generation Z, most of whom are just starting on their credit journey, represented 5% of subprime users, while the silent generation, with a lifetime of credit history, made up the smallest number of subprime consumers at 4%.

23% of Homeowners Have a Subprime Mortgage

Mortgage loans were down 8% year over year for the fourth quarter of 2018, as rising rates and home prices made for affordability challenges. At the same time, the percentage of subprime homeowners decreased by 3% in the fourth quarter of 2018 compared with the fourth quarter of 2017. The overall percentage of homeowners with a subprime mortgage in the U.S was 23% at the end of 2018.

Looking at the percentage of subprime homeowners by state, Nevada saw the biggest decrease of 1.5%. Utah and Washington, D.C., were tied with the next biggest decrease of 1.3%. In fact, all U.S. states saw their percentage of subprime homeowners decrease except Arkansas and Delaware. In total, 28 states had a lower percentage of subprime homeowners than the national average. Looking at metropolitan areas, Texas accounted for the top six markets with the highest percentage of subprime homeowners.

How Can I Improve My Subprime Credit Score?

There are several steps you can take to improve your credit scores no matter what range you may be in, starting with checking your credit scores online. When you check your credit reports and see your scores, there will be key information that shows the factors impacting those scores. These are known as risk factors, and they can help you understand the changes you need to make to help improve your scores. As we discussed above, payment history and credit utilization ratios are critical factors in a credit score. The two combined can sometimes account for 70% of a score and play a huge role in how good your scores will be. Keep in mind that a credit score reflects credit payment patterns over time, with recent credit information receiving a greater emphasis.

Take Control and Boost Your Credit Score

Another way you can improve your credit score is by getting credit for the bills you already pay every month. Consumers can now add utility (water, electric, gas and so on) and telecommunications (cable, internet, phone, satellite and wireless) payments to their Experian credit file through a new, free service called Experian Boost™†. For the first time ever, consumers can use these on-time monthly payments to give them more control over their Experian credit profile and how they're assessed for a lending decision. Experian Boost provides them with the ability to positively affect their FICO® Score and get connected to credit offers that will help them further establish credit.

You can visit experian.com/boost now to register for early access and receive a free credit report and FICO® Score immediately.

This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.

Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. MSA is the acronym for metropolitan statistical area, which groups counties and cities into specific geographic areas for population censuses and compilations of related statistical data.

FICO® is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.

†Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.

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